November
22, 1991 Response from Tax Commission
October
29, 1991 Letter from XXXXX of XXXXX
XXXXX
Re:
Advisory Opinion-Government Contract Purchases
Dear
Mr. XXXXX:
This
letter is in response to your recent request for a Tax Commission ruling on
whether sales tax is due on purchases by XXXXX used in the performance of a
contract with the federal or state government and if the state will treat the
purchases as reimbursable costs.
The
Tax Commission policy is to refer such requests to the division most qualified
to analyze the request and make recommendations concerning it. As such, your
request was referred to the Tax Commission's Auditing Division for their
analysis and recommendations. The division's recommendations are as follows:
1.
The sales and use tax law imposes tax on the sale of tangible personal property
to the final consumer. The final consumer is the person who pays for a product
and is the user of it. A government contractor uses the property in the
performance of his contract and is, therefore, the end user. This is so even if
there is a contract which immediately vests title in the government.
2.
This issue was resolved by the United States Supreme Court in 1982. The Utah
State Tax Commission further resolved it in 1990 by issuing Sales Tax Rule
R865-19-91S. Copies of the court case and rule are attached.
3.
Regarding whether the state will treat such purchases as reimbursable costs,
the state does not regulate accounting systems or methods. The law only
requires that adequate records be maintained to reflect the correct tax
liability.
Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendations. Obviously, if there are deviations from these
facts, this opinion may be negated.
If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
Notice of Appeal Rights and a copy of the Utah Taxpayer's Bill of Rights are
attached.
For
the Commission,
Joe
B. Pacheco
Commissioner
Utah
State Tax Commission
160
East Third South
Salt
Lake City, UT 84134-1100
Attention:
Commissioner Hansen
Dear
Sir:
I
am requesting an advisory opinion on the applicability of sales tax for
specific purchases made on behalf of the government.
XXXXX
(XXXXX) is a technology research and development corporation that conducts
XXXXX under Federal, State and private sponsorship. For government sponsorship,
the authority is usually of the form of a contract or a grant. As part of the
budget, there are certain cost items of supplies and equipment which we
purchase on behalf of the government and for which we pass these cost items
directly on to the government.
To
a specific point, XXXXX is currently performing on State Contract XXXXX. This
contract is funded from court-ordered payments under the XXXXX. The objective
of this contract is to compensate the "injured public" by development
of technology for enhancing the availability and/or reducing costs of energy.
Any sales tax on this contract would reduce the amount available to meet these
objectives. Our accounting system allows us to distinguish between purchases
made for use by XXXXX and those made for use by the government with XXXXX acting
as its agent.
Questions:
1.
Should sales tax be paid on purchases made as a direct cost to the State?
2.
If yes, will the State treat these as reimbursable costs?
Thank
you for your assistance.
Sincerely
yours,
XXXXX
President